CORRECTED... My answer was based on the original Subject which I co-mingled with @Stumbles question. My apologies... I concur with @tagteam on @Stumbles specific issue, so am modifying my comments.
Well, I talked to both a CPA ($100 and worth it!) and a tax lawyer (free 1/2 hr consult through a service my company provides) and both gave me the same guidance. (thank goodness)
You can find some good info in IRS Pub 551 (Basis Other Than Cos/Inherited Property/Property Held by Surviving Tenant and in 26 CFR 20.2040-1 (b) and (c). You have to pick from (c) 1-8 to find your specific situation to see what it says.
The bottom line from the hours of research I did, is that the step-up in basis based on the percentage that the decedent invested in the property, because that is what is passed on to their estate. If it was 100%, then 100% of the FMV gets attributed to the estate for the step-up adjustment.
That is my understanding. 🙂 I'm no professional. If the proceeds from the sale appear to be significant, it may be well worth the cost of a professional to get proper direction for your situation. It shouldn't take but 15 mins anyway. Just get all your facts bullet pointed and fire them off. Any CPA worth $200/hr should be able to answer pretty quickly even on a phone call. But as @tagteam indicates, you should get the full step up in basis. This also aligns with what I was told by the CPA and tax lawyer.
